Soft discretionary spend set to put a damper on Christmas sales boom

Just weeks out from the most anticipated period in the retail calendar, the ARA has warned retailers not to hold out for a Christmas sales boom, predicting a modest  $ 66.8 billion spend over the November to December 24 trading period, with the inflation driven growth up just 0.1 percent on 2022. 

However, the ARA notes the projection is subject to monetary decisions by the RBA. ARA CEO Paul Zahra warns the success of the highly anticipated Christmas trading period will be at the mercy of upcoming cash rate decisions by the RBA.  

“Australian mortgage-holders will be carefully watching the RBA’s decisions over the next few months with bated breath, but so too will retailers,” he said.

Department store spend is expected to grow this year as shoppers look to convenient methods, up 2.9 on 2022. Other retailing which includes recreational goods, books, cosmetics will also marginally increase 1.7 percent.

Food spending will increase 2.4 percent on last year, driven by rising costs and is set to make up $26.7 billion of the overall spend.    

Other spend categories have fallen in favour, with the newly recovered hospitality industry expecting a 4.2 percent drop this holiday season, Household Goods is down 3.2 percent and Clothing is down 0.8 percent.

“The marginal increase in spending this year is being inflated by supply chain price increases, particularly in food, and an overall increase in Australia’s population,” Mr Zahra said. “If you exclude these factors, overall Christmas spending is in decline. 

“For many discretionary retailers, up to two-thirds of their profit is made during the all-important Christmas trading period, so it is shaping up to be a period of business uncertainty this year. 

“Last year, Christmas spending was bolstered by a record freedom spending phenomenon with delayed overseas travel, whereas this year – shoppers are expected to be much more conservative with their budgets.  

 “This year we anticipate a bargain-driven Christmas shopper, who will actively seek out the best deals and look for value purchases. With increased competition and reduced spending across discretionary categories, retailers will be motivated to entice the budget shopper,” he added.